BRUSSELS/KIEV (Reuters) - Russia and
Ukraine resumed efforts to settle their gas price row on Wednesday after
Kiev rejected a proposal that would have cut its gas bill by around a
fifth and averted a possible suspension of supplies that would also hit
the rest of Europe.

The dispute is part of a broader stand-off between Ukraine and its
former Soviet master, as Kiev's new West-leaning leadership
struggles to contain a pro-Russian separatist rebellion in its
eastern provinces.

Arguments over the price Russia charges Ukraine for gas have rumbled
on for years and led to supply cut offs in 2006 and 2009. The latest
crisis began with the overthrow of Ukraine's Moscow-leaning
president Viktor Yanukovich in February, after which Moscow annexed
its neighbor's Crimea region and nearly doubled the price it charged
Kiev for gas.

Russian gas exporter Gazprom had been charging a preferential rate
as part of Moscow's effort to keep Ukraine from drifting into the
orbit of the European Union.

The European Commission, the EU executive, took on the role of
brokering trilateral price talks after Russian President Vladimir
Putin suggested three-way negotiations, but five rounds so far have
failed to get a deal.

Arriving for Wednesday's talks at the European Commission in
Brussels, EU Russian envoy Vladimir Chizhov hinted that Ukraine was
the obstacle.

"These negotiations stand a good chance of success, but this
particular tango takes three," he said. Asked who was out of step,
he said: "No prizes for guessing."

Ukraine's Prime Minister Arseny Yatseniuk at a cabinet briefing on
Wednesday made clear Ukraine rejected Russia's offer to lower gas
prices by removing export duty, a measure that would not be written
into the contract and was therefore at the whim of Moscow.

"I want to say that we know these Russian traps; the discount is set
by the Russian government and canceled by the Russian government,"
he said.

Ukraine instead wants to change a 2009 contract that locked it into
buying a set volume of gas, whether it needs it or not, at $485 per
1,000 cubic meters.

That level is the highest price paid by any customer in Europe, but
a $100 drop would take it into the EU market range.

Negotiators hope that Wednesday's talks between the two energy
ministers, the Commission and the CEOs of Gazprom and Ukraine's
Naftogaz will build on progress over eight hours of talks that broke
up in the early hours of Tuesday morning in Brussels.

But they are likely to stop short of a full deal after Gazprom
extended until Monday a deadline for Kiev to switch to prepayment or
face a supply cut-off.

If supplies are cut to Kiev, there could be knock-on disruptions to
the European Union as roughly half of the gas it receives from
Russia - about 30 percent of its gas demand - is shipped via
Ukraine.

MULTIPLE TALKS

The talks between Russia, Ukraine and the EC have been going on
while Kiev, Moscow and the Organization for Security and Cooperation
in Europe discuss peace proposals put forward by Ukraine's new
president, Petro Poroshenko, to settle an armed stand-off in the
east.

Those talks have produced what Kiev says is a mutual understanding
on key aspects of the peace plan, intended to end the insurrection
by rebels who want parts of Russian-speaking eastern Ukraine to join
with Russia.

Analysts say resolving the gas row would go a long way to taking the
heat out of the wider conflict.

Moscow dropped Ukraine's gas price from $485 per 1,000 cubic meters
to $268.50 after then-President Viktor Yanukovich turned his back on
a trade and association agreement with the EU last year, but
reinstated the original price after he was ousted.

Since then, Moscow says Ukraine has stacked up more than $4 billion
in debts to Gazprom and must pay off some of that before a new price
deal can be reached.

Kiev paid off $786 million at the start of last week but has since
said it will only pay more when an overall deal is struck.

(Additional reporting by Timothy Heritage, Elizabeth Piper and
Vladimir Soldatkin in Moscow; Editing by Will Waterman)